Exam 12: Managing and Reporting Performance

When managers and employees are involved in the formulation and operation of performance measures, this is known as:

When a manager is given responsibility for a business unit then they are accountable for all the components of the profits for that unit.

Transfer pricing is a system established internally to facilitate units being set up as profit centres.

Which of the following might you expect to see being used as a performance measure for a revenue centre?

The data in a performance report helps managers to:

Nova Company has two divisions: OPA Division and LPA Division. The OPA Division manufactures a single product, presently operates at 95 per cent of full capacity (100 000 units) and can sell all 95 000 units produced to outside customers. This product is also a component used in a product made by the LPA Division. OPA's full cost of production is $22.50 per unit, including $4.50 of applied fixed overhead costs. The applied fixed overhead is calculated based upon production of 95 000 units. OPA's management believes that production can be raised to 100 000 units without affecting cost behaviour. OPA's selling price per unit is $30 with a 10 per cent sales commission on outside sales. LPA is presently negotiating the purchase of units from OPA. LPA can purchase a comparable component outside for $29. What is the minimum acceptable transfer price for the first 5000 units from the viewpoint of OPA's management?

Which of the following is usually achieved when the general transfer-pricing rule is implemented?

Which of the following statements about the general transfer-pricing rule is/are true? i. When the producing division has excess capacity, the transfer decision should be based on the outlay cost. ii. When the producing division has no excess capacity, the opportunity cost is the foregone contribution from the lost sale. iii. If the producing division has excess capacity or the external market is imperfectly competitive, the general rule and the external market price will not yield the same transfer price.

Senior managers use performance measures to:

Delegating decision making to lower-level managers, thereby enabling an organisation to react quickly to opportunities and problems as they arise, is a characteristic of:

When a contribution margin format is used for reporting, expenses are grouped according to the functions (e.g. sales and distribution, financial) carried out by the organisation.

Which of the following statements best completes this sentence? 'A cost is deemed to be controllable by the manager .....'

Division A transfers a profitable subassembly to Division B, where it is assembled into a final product. Division A is located in New Zealand, which has a high tax rate. Division B is located in Thailand, which has a low tax rate. Ideally, (1) which type of before tax income should each division report from the transfer and (2) what type of transfer price should be set for the subassembly?

Which of the following might you expect to see being used as a performance measure for a profit centre?

Fragrance Pty Ltd has two divisions: the Cologne Division and the Bottle Division. The company is decentralised and each division is evaluated as a profit centre. The Bottle Division produces bottles that can be used by the Cologne Division. The Bottle Division's variable manufacturing cost per unit is $2.00 and shipping costs are $0.10 per unit. The Bottle Division's external sales price is $3.00 per unit. No shipping costs are incurred on sales to the Cologne Division. The Cologne Division can purchase similar bottles in the external market for $2.50. Assume the Bottle Division has no excess capacity and can sell everything produced externally. Using the general rule, the transfer price from the Bottle Division to the Cologne Division would be:

The difference between establishing a shared service unit and centralisation shared services include: i. centralised services are located at corporate headquarters; shared services are located close to internal customers. Ii centralised services are more efficient than shared services. Iii centralised services are evaluated based on service adherence to service level agreements; shared services are evaluated based on budgets and corporate objectives.

Fruities Ltd has two divisions, Durian Division and Juice Division. Durian Division has an annual capacity of 10 000 units of either juice concentrate or fruit paste. Usually, Durian Division produces durian juice concentrate for the Juice Division. Juice Division's annual requirement of durian juice concentrate is 8000 units. There is no external market for durian juice concentrate; however, the Durian Division can use its facilities to manufacturer prune paste, which is a very popular product with unlimited external demand. The market price for prune paste is $13 per unit. The variable production cost of one unit of durian juice concentrate at Durian Division is $6, and the variable production cost of one unit of prune paste is $8. Durian division also incurs $1 additional shipping cost per unit when selling prune paste to external suppliers. Using the transfer pricing formula, what is the per unit transfer price selling one unit of durian juice concentrate to Juice Division?

When a company manager's behaviour is aimed at achieving the goals of an organisation, the company can be confident of goal congruence.

The budgeted and actual amount of a responsibility centre's key financial results are shown on a:

Which of the following is not an example of a responsibility centre?